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Charlotte Gore: Wrong, unsurprisingly

Lovely gal, nice to converse with on twitter, but this is dreadful. This one line leapt out at me like a torrid stream of faeces.

The Government, by its very nature, has no means of creating wealth itself.

To steal from Raymond Geuss she then allows that bald statement to lie flapping and gasping for breath like a large, moribund fish on the deck of a trawler, with no further analysis or discussion, and proceeds to draw consequences from it.

This isn’t a left-right dig either, its just simple common sense. In fact for this blog I will be wearing my classical liberal hat.

Lots of services which the state provides are not easily provided by competing private businesses. For example it is not possible for the law courts, the police, national defence to be provided by private actors. [1] These are services which are essential for a modern existence of any sort. They are best provided by the state because people can receive their benefits without paying for them and because you cannot have rival armies/police/courts defending/policing/judging over a given are of land.

So probably the first 20% GDP or so paid to the state, even under duress, for its services add value, almost without argument. You can remark that since Hong Kong and Singapore both survive with tax revenues at around 13% of GDP that its only the first 13% of GDP that add value and you may be correct. [2] But that’s a debate for another day, what we have established is that some state is good and makes us richer.

There are some objections which may be raised here. I hope to pre-empt some of these.

1. Some would argue that this isn’t the state creating wealth, but merely providing “conditions in which wealth can be created.” This is a contortion I’ve seen many right wingers adopt while grappling with the fact that the state has a use. This position has no logical foundation, wealth is about adding value and the described state provided services add value. A private company, Safaricom create conditions in which wealth can be created by making money transfer easier, but they are a private company, the question of why to count this as wealth creation and not that done by the state which is essential is never addressed.

2.The state does far more than that today, the state provides healthcare for example. This is more interesting, but it is still not an argument that the state does not produce wealth. At best, from this argument merely flows the proposition that without competition, success and failure, the state is producing less wealth than would be created in the private sector. It appears that Charlotte is almost making this argument at times, but from her above remark I can only conclude she’d reject this analysis.

Why remark on this?

Well, it worries me that deficit crazies like Charlotte Gore are winning the argument. The austerity she wants is on the way and it will have dreadful consequences, but nothing in her post allegedly “On Lending” addresses any of the real world problems it should to grant that victory. Charlotte Gore outlines in this post why capitalism is good, and describes it articulately, but then follows this by the foundationless brain blurt discussed above and concludes that since the government can’t create wealth, a premise she has not – and cannot – prove, all deficits are wrong.

The economy is not working as it should be. Confidence is dropping, monetary policy has become ineffective at the zero lower bound, businesses are not investing, banks are not lending (although this is improving), and the state can borrow incredibly cheaply. As I addressed yesterday, the crowding out of the private sector by the state which Charlotte correctly highlights is not our primary concern. Government borrowing is not going to depress private business as much as depressed demand will (see Krugman on this before commenting).

We’ll conclude with a few of her own words:

The point of this post is to attempt to tackle this idea that it doesn’t matter whether it’s the public sector borrowing money and spending it, or the private sector borrowing it and spending it – it’s all just cash and it all goes around just the same, creating demand for food and clothing etc. But there IS a difference, and that difference is everything. It is the difference between real growth – increasing wealth – and simply trading other people’s ability to create wealth in the future for short term political gain.

She has taken a concept lacking foundation in empirical reality, that the state cannot generate wealth or produce demand, mixed it with an ahistorical description of capitalism, not taking in the fundamentals of our current situation and failed at her original purpose.

Even if you consider the courts, the police, the road network and all the other infrastructure, non of these create wealth.

I’d like to see how far private firms get in creating wealth without infrastructure like power generators, roads, bridges etc.. and that is even before we take into account how spending on that infrastructure creates wealth via the multiplier effect.